We were looking at residential real-estate web sites to get an idea of prices for very small houses–about 600-800 square feet, 2-bedroom 1-bath.
We found one valued currently about $120-$130k–typical for this area–that sold in August 2014 for $35,000.
What would account for such ultra-low purchase price–A foreclosure auction or something like that?
We’re complete novices at the house-buying game, so would greatly appreciate info and help about this–
Thank you!
Possibly the buyer and seller had an existing relationship, making the price totally unrelated to market forces.
(source: i just did kind of the same thing)
A foreclosure auction.
A sale to a child or other relative at a non-market price.
Some severe problem with the site like an oil tank leak into the soil making it a toxic waste site which has since been remedied.
Could be lots of things. Sale to a family member for cheap. House in horrible shape that has since been renovated. Foreclosure or short sale of a house in poor condition.
Ah–got it.
Which raises an additional Q, mainly for my own curiosity:
In such a situation–say, selling a market-valued $110k house for $35k–are there tricky IRS considerations? Like, the difference betw/market and sale price being a gift? Or even more complex, involving estate/inheritance questions? [beyond the scope of this thread, for sure.]
When I was looking to buy my house a few years ago, there was a foreclosure down the street that had a pretty low price for the area. I asked about it, and apparently the former owners removed the entire kitchen prior to going into foreclosure. So whoever wanted to buy it had to replace the kitchen–cabinets, counters, appliances, sink, plumbing, and everything else. They may have even removed the furnace and water heater.
A transaction between related parties at much more or less than fair market value may indeed have tax consequences. That includes both gift or estate tax and e.g. that your seller may not be allowed to deduct an artificial loss. In your example, any gift tax due would probably fall within the lifetime exclusion amount (~$5M); so the IRS probably wouldn’t actually get to collect money now either way, which is probably why it’s not a big enforcement priority. The property tax people would probably ignore the sale price, and tax you on their estimate of FMV.
With larger amounts, games not unlike this are an important part of the way that high-net-worth families maintain their wealth across generations. The IRS can try to argue, but it’s often very difficult to establish FMV for e.g. unique real estate, or a private business.
If you look up the last selling price of my townhouse, it says $35,000. Which is the amount of the Home Equity Loan I had to take out to pay my ex-wife 
Maybe it’s something like that.
Back in the day …
It was sometimes possible to assume a mortgage.
If the house is worth $135k and the mortgage is $100k, you pay the owner $35k and get the house.
The lender has to approve the new buyer, yadda yadda.
But with mortgages being swapped around, the profit on closing costs, etc., this doesn’t happen*. But here and there it might be possible to find one of those. But then again, the mortgage would be paid off enough that it’s not going to such a big factor.
Being haunted will do it every time.
Quoting TommySeven: “The property tax people would probably ignore the sale price, and tax you on their estimate of FMV.”
This. It’s exactly what happened to me on a family transfer.
There is a business model where a real estate investor will get daily foreclosure notice lists and make below market offers on distressed properties which aren’t underwater. That seemingly $120k home may have been damaged or neglected with a value of $45k and a motivated seller with a $30k mortgage. The investor could have spent too much repairing the home to make an immediate profit and rented the home waiting for an increase in market value to get his money back out.
Just one possibility.
To emphasize, I’m not aware of any states that base property tax on sale price - it’s always done on some kind of official estimated market value that is a bit higher than you could hope to sell the house for 95% of the time.
California. Prop 13.
I’m in the UK and own a pleasant 3 bedroom house with front and back gardens.
The houses in my block are identical.
The last time a nearby house was sold, it went for about £30,000 (approximately $43,700) less than market value. :eek:
I discovered from the buyers that the previous owners had basically trashed the place:
and the piece de resistance was fat stains on the kitchen ceiling :smack:
I forgot about this one house near us until I drove by it yesterday.
The owners were away for a good while, a pipe broke and just flooded the house. They didn’t find out about it for weeks. (The owners were also in financial straights for years. So, for example, there was a plastic tarp on the roof which isn’t that great of protection from the rain in the short term, never mind the long term.)
They ended up selling it to a house fixer guy. Definitely in the price range the OP speaks of. The fixer spent months and a huge amount of money cleaning it up. Lots of mold remdiation trucks parked outside it. New drywall, insulation, flooring, etc.
Seemed to us it would have been cheaper to raze it and start over.
Anyway, eventually sold it for a price a little higher than we expected. (And our housing prices here are very low.) We still don’t see how he made money on it. Esp. given the length of time it took between sales. Even if he squeaked out $10-20k on the deal, dividing by the number of months, it wasn’t worth it.
According to the wikipedia article, prop 13 doesn’t use the sale price, it used the ‘assessed value’ originally, and uses ‘current market value’ rather than sale price if a home changes hands. Like I said, they use some kind of “official estimated market value” and NOT the sale price to assess property tax, so your example is not a counter unless the wiki information on prop 13 is completely wrong.
Similarly, we bought a house from a family member (below market value), but we also paid contract-for-deed for several years before buying it outright. So we had already paid many thousands on the purchase price before ever getting the mortgage in our own name. So when you look on Zillow, it says the house sold in 2014 for $35k, even though we started living here in 2005 and the original contract was for $50k. (The house appraised for $80k. There was no mention of us owing gift taxes on the difference. We also put quite a few thousands in sweat equity into the place over the years – not sure how that effects the tax question.)
I was in the same situation when I was buying. Two house on the same street, one was $70K less than the other. The cheaper house was uninhabited for two years after the owners died in a car accident and they didn’t have children around to take care of it. It developed mold in the basement due to it being just being locked up, the chimney was separating from the house and rear deck was rotting. I walked away from it due to the mold, that and the bank was really dragging its feet on it.
If the house is new, it could’ve been just the cost of the lot. My house was built in 2013 and the sales price on all of the official data is the cost from when I purchased the lot a couple of years before.